The Qwikster Debacle – What we can Learn from it

Nothing reminds you so quickly of the fact that even CEOs of major corporations are human than when they royally screw up. When they come right out and admit it in short order, you really wind up dropping a lot of whatever agitation you feel at their six-or-seven-figure salary. Suddenly you just want to forget it all, take them out somewhere and buy them a beer.

Maybe I’m letting my nice-guy side show a bit here. Some of the angriest Netflix refugees would surely say so. That does, though, seem to be about where a lot of the Netflix community is after the cancellation of the fascinatingly wrong-headed disaster known as Qwikster.

How did such a beloved company fall so far so fast? And what do we have to learn from it? Let’s go to the instant replay.

The quick and dirty summary – and it’s both

Following a July 2011 price hike that was huge and poorly received (even as price hikes go), Netflix made the decision to branch off its DVD business from its streaming business. Netflix would still handle all streaming content. The DVD side of their business would be split into a separate company called “Qwikster.” A blog post from Reed Hastings, Netflix CEO, first apologized for the company’s bad communication, and then gave a brief summary of the coming changes.

Despite the fact that there seemed a genuinely contrite tone in his post, reaction to the announcement was swift and toxic. One user responded with the comment “I’m afraid your letter will go down as the oddest suicide note in history.” Perhaps having seen it, Hastings, in turn, remarked three days later, “In Wyoming with 10 investors at a ranch/retreat. I think I might need a food taster.”

The bad press and worse customer reaction piled on unmercifully. Whatever reasons that there might have been for the change from an internal perspective, customers could see no immediate way that this benefited them, and a lot of ways that it didn’t. Customers would have to keep two separate accounts with separate information. When you rated movies on one service it wouldn’t show up on the other. This just seemed to make everything more complicated for no good reason.

This is the end

Finally, not a month after the initial announcement, Netflix issued their surrender. In a contrastingly curt note, Hastings announced that the changes would be scrapped. User reaction to this was split. Some were just so agitated by everything that had happened that they weren’t in the mood to applaud much of anything. Others appreciated that the company was listening to their customers, admitting to an error, and changing course.

What fallout will come from this whirlwind remains to be seen. One minor unknown is the fate of by-mail video game rentals. This was originally packaged as one of the few new benefits to Qwikster. Whether or not it will still happen is undetermined.

The bigger question is whether or not Netflix will survive this collapse. Estimates are that the price hike alone lost them 1 million of their 25 million customers. There’s no word yet on how much lower they might go now. Message boards are filled with users declaring their departure, but this is, of course, an unscientific metric. Still, even after the reversal, Netflix’s stock continued to drop.

Using our 20/20 hindsight, it seems hard to think of any reason in favor of this. Much speculation surrounded the initial decision. Some of the theories included:

Licensing issues – Movies are licensed separately for different formats. With a company that handles more than one, sometimes access to one license is used as leverage against another. Splitting the companies would prevent this, and help Netflix show more diverse streaming content, a constant customer complaint.

Streaming costs – One related theory suggested that a split would reduce Netflix’s streaming costs, by reducing the number of users who could potentially pull from it. Again, a price drop would result in greater selection.

Subtle murder – Some believed that Netflix wanted to find a way to kill off its DVD business entirely while making it look like something else forced them to pull the plug. Splitting the business would be all the cover they needed.

In truth, though, the main problem with this attempted maneuver is that, whatever the reasons for it were, it was something meant to benefit the company and not the customer. One commentator pointed out that if they had actually worded it this way, they could have gotten away with it.

The lessons learned

They didn’t, though, and what’s done is done. Let’s use this, then, to look at some of the lessons we can learn from this debacle.

Communicate with your customers – No, really, communicate at all times. Customer bases around the world have been begging for this for years. They perhaps don’t realize that a little goes a long way. Maybe this incident will reinforce that point.

Remember that your customers are not helpless – An arrogant company can convince themselves that they can change whatever they want, and their users will learn to love it. Remember how well that worked for New Coke? For that matter, even Facebook is feeling the pinch from pushing their “innovation” a bit too far.

Don’t be afraid to admit your errors – This is the one thing that Netflix got right. Yes, he got some “flip-flop” heat for backtracking, but those people got jumped on themselves. Admitting that you are wrong and that you’re listening to your customer base can only do you good.

It remains to be seen whether or not Netflix can rebound from this pair of dueling blunders. This isn’t a very forgiving economy right now. Making timing worse is that a crowd of competitors is set to jump into the streaming market, whether or not Netflix falls. Even Blockbuster, who Netflix themselves pushed down the ladder, is getting into the act.

There are a lot of loyal users who still hope that Netflix can pull themselves out of this mess. If so, maybe someday they’ll really be able to share a drink with Mr. Hastings and laugh about it all.

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